Digitalization and foreign direct investment performance: The moderating role of corruption and judicial independence

Abstract

The aim of this paper is to investigate the relationship between digitalization and foreign direct investment (FDI) and test whether corruption (COR) and judicial independence (JUD) moderate this relationship. The sample contains 114 countries during 2016. The author obtains FDI data from the World Development Indicator (WDI) database, which was published by the World Bank in 2016. The World Bank’s digital adoption index (DAI) for 2016 was used to collect digitalization proxies. Finally, the remaining variables are gathered from the Global Competitiveness Report for the same year. Results show a positive and significant association between digitalization and foreign direct investment. This positive association remains stable and more pronounced and significant in countries with low levels of corruption, while it becomes weak and non-significant in countries with high levels of corruption. When the moderating effect of judicial independence is tested on the association between digitalization and foreign direct investment, the positive association between the two variables remains positive but more pronounced and significant in countries with high judicial independence systems, while it becomes low pronounced and non-significant in countries with low judicial independence systems. The findings emphasize the importance of decreasing corruption and strengthening judicial independence in order to maintain the positive relationship between digitization and FDI. Therefore, investors prefer stable environments with transparent legal systems, making anti-corruption policies and independent judiciaries critical in attracting and retaining FDI. These initiatives promote trust, foster a favorable business climate, and ensure that digitalization contributes to long-term economic progress.